FreedomWorks - quantitative easinghttp://www.freedomworks.org/fieldtags/quantitative-easing
enQE and Minimum Wage are State Sponsored Price Fixinghttp://www.freedomworks.org/content/qe-and-minimum-wage-are-state-sponsored-price-fixing
<div class="field field-name-field-image field-type-image field-label-hidden"><div class="field-items"><div class="field-item even" rel="og:image rdfs:seeAlso" resource="//d7.freedomworks.org.s3.amazonaws.com/styles/large/s3/field/image/FedReserve.jpg?itok=yRqf19vF"><img typeof="foaf:Image" src="//d7.freedomworks.org.s3.amazonaws.com/styles/large/s3/field/image/FedReserve.jpg?itok=yRqf19vF" width="480" height="360" alt="The country&#039;s biggest price fixers." /></div></div></div><div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"><p>In his classic economic text, The Wealth of Nations, Adam Smith had the following to say about collusion: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”</p>
<p>In the private sector, this is known as price fixing, and it is illegal. The Department of Justice is charged with detecting and curtailing efforts to rig prices wherever they occur--with one notable exception. Price fixing is considered acceptable, even noble, when it is done by the government instead of by private companies.</p>
<p>When a handful of companies conspire to fix the price of a certain product, usually the effects are limited to a small segment of the economy. When the government does it, everyone is affected, and the damage is catastrophically worse.</p>
<p>The two most obvious examples of this are the Federal Reserve’s continued justification for its quantitative easing policies and the Democratic push for <a href="http://www.whitehouse.gov/the-press-office/2014/03/29/weekly-address-raise-minimum-wage-it-s-right-thing-do-hardworking-americ">major increases</a> in the minimum wage. These may seem like wildly different and unrelated issues, but fundamentally they are the same: a misguided attempt by central planners to set prices contrary to the mechanism of the market.</p>
<p>Let’s take quantitative easing first. With QE, the Federal Reserve intended to hold interest rates down in order to encourage businesses to borrow money and invest it in new capital and more workers. Interest rates are nothing more than the price of borrowing, so holding them down artificially is no different than centrally setting the price of any other good.</p>
<p>The price system is important because it reflects millions of individual decisions taking place every day. All of this information is transmitted to investors through prices, allowing them to make informed business decisions based on actual consumer behavior. When the government interferes to change prices, the information borrowers receive is wrong, and this causes them to make bad investment decisions that ultimately hurt the economy.</p>
<p>The minimum wage represents exactly the same problem, except that here the government is keeping prices artificially high instead of artificially low. Putting aside the hypocrisy of the government prosecuting businesses who conspire to raise prices while doing the same thing itself, high minimum wages are incredibly distortionary. Businesses have only so much money to devote to payrolls. When the price of labor rises, simple arithmetic demands that either hours be cut or fewer workers be hired. With an unemployment rate of 6.7 percent and a labor force that is smaller than it has been in decades, this is the last thing the country needs.</p>
<p>Federal legislators mistakenly believe that they are in a position to know what prices should be, regardless of any quaint and outmoded notions of supply and demand. This is the same kind of thinking that resulted in bread lines in the Soviet Union and gasoline shortages under Jimmy Carter. We see this exemplified in Democratic Senator Kay Hagan. Hagan has made her support of a national minimum wage a <a href="http://thehill.com/blogs/floor-action/199444-hagan-joins-1010-push">key component</a> of her campaign, and has been vocal in her support for the Federal Reserve. When faced with a bill that would introduce more transparency and accountability into the Fed’s operations, Hagan opposed the effort, saying the following: “The immediate and broad disclosure that S. 604 would require could disrupt the financial markets, and jeopardize our country’s international finance relationships.” Just trust the experts. They know best.</p>
<p>Progressives think that if they can just find smart enough experts, their massive brains will be able to come up with solutions to all our economic problems. But economics does not work that way. No one, no matter how many Ph.Ds they hold, can possibly coordinate all the information created by 300 million people acting independently. It is too much for any single mind, or even a single computer model, to handle. This is what F.A. Hayek referred to as the Knowledge Problem in his groundbreaking essay <a href="http://www.econlib.org/library/Essays/hykKnw1.html">The Use of Knowledge in Society.</a></p>
<p>The hubris of members of the political class in thinking they can determine prices more effectively than the market is astonishing. History has proven again and again that central planning always fails. As the old adage says, pride comes before a fall.</p>
</div></div></div>Mon, 31 Mar 2014 14:36:32 +0000logan.albright59567 at http://www.freedomworks.orghttp://www.freedomworks.org/content/qe-and-minimum-wage-are-state-sponsored-price-fixing#commentsThe Fed Cannot Employ, It Can Only Inflatehttp://www.freedomworks.org/content/fed-cannot-employ-it-can-only-inflate
<div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"><p>Paul Krugman is at it again. The Nobel Prize-winning, devoutly Keynesian economist argued in a <a href="http://www.google.com/url?q=http%3A%2F%2Fwww.nytimes.com%2F2013%2F05%2F03%2Fopinion%2Fkrugman-not-enough-inflation.html%3F_r%3D0&amp;sa=D&amp;sntz=1&amp;usg=AFQjCNGvVCVhTLYYy1pSIWtbdrns3DMThA">recent column</a> that the thing needed to cure the sluggish American economy is, wait for it, more inflation. This is the classic Keynesian view that the Federal Reserve can stimulate the economy by inflating the currency. Krugman is doubtless basing his reasoning at least partially on the well known, but now outdated Phillips Curve, which demonstrated a historical inverse correlation between inflation and unemployment.<br><br>What the Phillips Curve fails to demonstrate, however, is any causal relation between rising inflation and lower unemployment. No doubt, prices tend to rise during periods of robust economic activity due to increased demand resulting from increased wealth, and prices fall during contractions simply because people have less money to spend. It does not follow, however, that an artificial increase in inflation will create jobs. In fact, it is likely to do just the opposite. For this reason, the Phillips Curve has largely been abandoned by the field of modern economics.<br><br>For one thing, rising prices create uncertainty, and business owners are unlikely to invest if they have no idea what their costs are going to be in the future. What company would commit to hiring new employees when the costs of their suppliers could unexpectedly rise at any time?<br><br>Nor is more inflation beneficial for workers. Wages are notoriously slow to adjust to price changes, so a rising price level would leave workers with steadily declining real wages, in addition to eating away at their savings and any cash on hand. At no point in history has a general decline in real wealth been the harbinger of great economic prosperity.<br><br>There are administrative costs of inflation too, as merchants are forced to update their catalogues and price lists frequently in order to stay abreast of the latest changes, and banks are required to continually update their interest rates.<br><br>Krugman’s ideas are based in part on the assumption that inflation is currently very low. This is an understandable thing to think if one merely glances at the Bureau of Labor Statistics’ Consumer Price Index, but is less credible when actually trying to purchase groceries or household items. The Consumer Price Index(CPI) is a notoriously poor gauge of inflation, since it measures a fixed basket of goods that do not change over time to reflect advancing technologies and shifting consumer preferences.<br><br>The Federal Reserve has already devalued the currency by pumping unprecedented levels of cash into the economy through its quantitative easing program. The result has not been more jobs, but rather artificially low interest rates that discourage saving and punish those who were responsible with their money before the recession. Saving is important to provide capital for business investments and to provide for workers in their old age. Policy makers are already fretting heavily over the underfunding of America’s Social Security and private pension systems, a problem partially created by the Fed’s easy money practices.<br><br>To suggest that these policies should be continued and even increased is to show a blatant disregard for the well being of the economy and all those struggling to make ends meet within it. Inflation is never a desirable policy goal. If we want to see jobs return to the private sector, the only way is to allow prices to stabilize and to promote sound money so that employers regain the confidence to invest and employ.</p></div></div></div>Mon, 13 May 2013 16:15:04 +0000logan.albright57325 at http://www.freedomworks.orghttp://www.freedomworks.org/content/fed-cannot-employ-it-can-only-inflate#commentsBernanke Announces QE3: Here’s Your Fact Sheet!http://www.freedomworks.org/content/bernanke-announces-qe3-here%E2%80%99s-your-fact-sheet
<div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"><p>Chairman <a href="http://www.federalreserve.gov/newsevents/press/monetary/20120913a.htm">Ben Bernanke</a> made two announcements Thursday about monetary policy: (1) the Federal Reserve will begin its third round of quantitative easing, and (2) it will maintain extremely low interest rates of 0 to 1/4 percent until at least mid-2015. These banking actions may sound like gobbledygook, but their effects on our country’s currency are drastically serious. Let’s translate a few things into layman’s terms.</p> <p><strong>“QE3” — what’s this mean?</strong></p> <p>The acronym refers to an unconventional monetary policy called “quantitative easing,” and the subsequent number refers to the specific round of easing. Yes, this means the Fed has already completed two rounds without success.</p> <p>The stated goal is to stimulate economic growth. At this point the Fed has forced interest rates as low as humanly possible — any lower and lenders would be paying debtors — so the only option left is to create money out of thin air and inject it into the nation’s money supply by purchasing various banks’ financial assets.</p> <p><strong>What will QE3 entail?</strong></p> <p>The Fed will buy $85 billion in assets every month until the end of the year. Its purchases will consist of $40 billion in mortgage-backed securities (essentially mortgage debt) belonging to one of our economy’s most depressed industries.</p> <p>Unlike QE1 and QE2, QE3 is “open-ended.” This gives the Fed unlimited power to extend the year-end deadline. Not only can it continue buying potentially worthless assets “if the outlook for the labor market does not improve substantially,” it admits the practice will probably be used even “after the economic recovery strengthens.”</p> <p>Ultimately the choice to dilute the USD’s purchasing power is left up to Bernanke’s discretion.</p> <p><strong>Can we trust Bernanke’s discretion?</strong></p> <p>Even if QE were a sensible plan, you may ask, how accurate is the Chairman in analyzing economic trends? History’s answer: he’s terribly inaccurate. Let’s hope he doesn’t get into archery. For example, in January 2008, Bernanke explained to reporters, “<a href="http://afp.google.com/article/ALeqM5jg0-uy90_R_Aovq5Aql3C2SQ8x-w">The Federal Reserve is not currently forecasting a recession</a>.” You’ll see in the graph below — obtained from the Bureau of Labor Statistics — that his embarrassing forecast was followed immediately by skyrocketing unemployment.</p><p><a href="http://data.bls.gov/timeseries/LNS14000000"><img src="http://d7.freedomworks.org.s3.amazonaws.com/UNEMPLOYMENT.PNG" alt="Unemployment Rate" title="Unemployment Rate" class="imagecache imagecache-full"></a></p><p>On the other hand, Congressman <a href="http://paul.house.gov/index.php?option=com_content&amp;task=view&amp;id=323&amp;Itemid=6">Ron Paul</a> and investor <a href="http://youtu.be/2I0QN-FYkpw">Peter Schiff</a> were predicting the housing crisis-fueled recession all the way back in the early 2000s. So I’m a little wary of Bernanke’s ability to properly understand the business cycle, let alone of giving him the tools that cause the cycles.</p> <p><strong>What effects will we see?</strong></p> <p>The balance sheet below — obtained from the Federal Reserve Bank of Cleveland — is a summary view of the central bank’s holdings. You can click the image to view the full-sized chart, or you can check out the <a href="http://blogs.wsj.com/economics/2012/09/13/a-look-inside-the-feds-balance-sheet-15/tab/interactive/">Wall Street Journal</a>’s interactive graphic featuring the same numbers.</p><p><a href="http://www.clevelandfed.org/research/data/credit_easing/index.cfm"><img src="http://d7.freedomworks.org.s3.amazonaws.com/BALANCESHEET.PNG" alt="Federal Reserve Balance Sheet" title="Federal Reserve Balance Sheet" class="imagecache imagecache-full" height="247" width="446"></a></p><p>The amount of mortgage-backed securities is so worrisome because these assets are unstable and don’t disappear after the Fed’s purchase. The securities still exist and have to be released back into the economy at some point in the future. By temporarily flushing them out of the public’s view, the Fed is misleading certain investors and leaving other ones bearish. The release of these securities will be met with the realization that important resources are severely misallocated.</p> <p>The immediate effects are more straight-forward.</p> <p>Expect a strong boost to the stock market. The Fed begins purchasing assets today, and that means Wall Street investors who own mortgage-backed securities will have liquid portfolios to spend on other stocks. Typically zero percent interest rates signal you’ll want to invest in industries like banking and housing for a short time while the bubble grows, but, since interest rates are already zero bound, the situation is stickier.</p> <p>Currency dilution also signals that gold and silver prices will increase. They’ll be used as a hedge against the impending price inflation. Any metal with intrinsic value — the currency advocated by Austrian School founder Carl Menger — will likely follow this pattern.</p> <p>The details about how QE affects the rich and poor will have to wait for a future blog post. I’ll also explain the relationship between currency strength and the central bank, as well as what that relationship means for our country’s economy. In the end, policymakers will have to choose between two options: (1) monetize the debt through inflation as it’s doing now, or (2) get America back on the path to fiscal conservatism and sound, constitutional money.</p> <p><strong>What do we do now?</strong></p> <p>The "<a href="http://www.freedomworks.org/blog/jborowski/audit-the-fed-passes-house">Audit the Fed</a>" bill easily passed the&nbsp;House with a&nbsp;327-98 vote in July. Only one Republican — Bob Turner&nbsp;of&nbsp;New York&nbsp;— voted "nay."</p> <p>Senate Majority Leader <a href="http://www.freedomworks.org/blog/jborowski/demand-harry-reid-bring-audit-the-fed-bill-to-a-vo">Harry Reid</a>&nbsp;is currently blocking the bill from a vote in the upper chamber.&nbsp;Matt Kibbe, President and CEO of FreedomWorks, has written a letter to the Senate urging "yea" votes on Senator&nbsp;<a href="http://www.freedomworks.org/publications/letter-to-senate-cosponsor-rand-pauls-audit-the-fe">Rand Paul</a>'s supplement, S. 202.</p> <p>Join us in our fight for monetary accountability by <a href="http://www.senate.gov/general/contact_information/senators_cfm.cfm">contacting</a> your senators and telling them to support&nbsp;an audit of the central bank.&nbsp;You can also share Congressman Ron Paul’s <a href="http://paul.house.gov/images/stories/Audit_the_Fed_FAQ.pdf">FAQ</a> sheet with your friends and family for more information on why this action is important.</p></div></div></div>Fri, 14 Sep 2012 18:00:42 +0000BrianLaSorsa55614 at http://www.freedomworks.orghttp://www.freedomworks.org/content/bernanke-announces-qe3-here%E2%80%99s-your-fact-sheet#commentsQE3 Will Further Destroy U.S. Dollarhttp://www.freedomworks.org/content/qe3-will-further-destroy-us-dollar
<div class="field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item even" property="content:encoded"><p>Speculation has risen that Fed chairman Ben Bernanke may announce yet around round of quantitative easing or QE3 on Friday. As economist Thomas Sowell <a href="http://www.creators.com/opinion/thomas-sowell/fed-up-with-the-fed.html">says</a>, “when people in Washington start creating fancy new phrases, instead of using plain English, you know they are doing something they don't want us to understand.” The term quantitative easing in layman’s terms just means that the Fed will print more money out of thin air. What could possibly go wrong? Well, for starters, the value of the U.S. dollar will continue to decline and it could set the stage for hyper-inflation.<br /><br />Of course, the first two rounds of quantitative easing have failed miserably to stabilize the economy. This should have signaled that pumping new money into the economy is just not the solution. But Fed officials who have refused to accept reality continue to run the printing processes on overtime. After QE3 fails—and it will—we might as well expect to see QE4, QE5 and so on until the dollar is literally worthless. <br /><br />The actions of the Federal Reserve have a dramatic impact on the lives of every single American. The central bank essentially controls the value of the money that we have in our pockets. QE1 and QE2 can be blamed in large part for the skyrocketing price of food at the grocery store. The same supply and demand rules apply to money. The more dollars we have in the circulation, the less valuable the money becomes. The Fed is a main reason why it’s costing us more dollars to fill up our gas tank nowadays. <br /><br />For decades, Rep. Ron Paul (R-Texas) was the lone voice in Washington speaking out against the Federal Reserve. He <a href="http://www.lewrockwell.com/paul/paul334.html">writes</a> that “the inflation tax, while largely ignored, hurts middle-class and low-income Americans the most. Simply put, printing money... dilutes the value of the dollar, which causes higher prices for goods and services. Inflation may be an indirect tax, but it is very real — the individuals who suffer most from cost of living increases certainly pay a ‘tax.’” QE1, QE2 and QE3 are nothing more than stealing wealth from the people through the hidden tax of inflation. <br /><br />Our Founding Fathers would surely be outraged by the existence of the Fed. These great men believed in a limited government that was held accountable to the people. The Federal Reserve, which is generally regarded as a <a href="http://www.lewrockwell.com/paul/paul447.html">quasi-governmental entity</a>, has less <a href="http://mises.org/books/fed.pdf">oversight</a> than even the Central Intelligence Agency (CIA). The most powerful central bank in the world makes all of its decisions without even a single vote from our elected representatives in Congress. <br /><br />You can bet that the Fed is up to no good behind closed doors. Due to a provision under the misguided Dodd-Frank financial overhaul law, the Government Accountability Office (GAO) conducted a one-time, watered-down audit of the central bank back in July. It gave the American people their first peek into the central bank’s books but prevented investigators from peering into their deliberations on interest rates and the most crucial transactions of the Fed. We still need to pass a true audit the Fed bill like Ron Paul’s <a href="http://www.freedomworks.org/blog/mkibbe/letter-to-house-cosponsor-rep-ron-pauls-audit-the">Federal Reserve Transparency Act of 2011</a> that would require comprehensive audits on a regular basis.</p>
<p>The first ever audit revealed that the central bank “loaned” out <a href="http://www.businessinsider.com/feds-16-trillion-dollar-secret-slush-fund-props-up-our-way-of-life-2011-7">$16 trillion</a> at a zero percent interest rate to corporations and banks around the world during the height of the financial crisis. To put that number into perspective, the Gross Domestic Product (GDP)—the value of all economic activity within a country— of the United States is only <a href="http://www.unitedliberty.org/articles/8603-audit-of-the-federal-reserve-finds-massive-bailouts">$14.12 trillion</a>. It’s no wonder that the Fed is desperately trying to protect their privileged secrecy. <br /><br />The Fed used to be the giant elephant in the room that nearly everyone ignored. We can see the political tide shifting since it has suddenly become popular to criticize the Fed. I have a strong feeling that the rise of the Ron Paul phenomenon has something to do with it. The author of the book <em><a href="http://www.amazon.com/End-Fed-Ron-Paul/dp/0446549193">End the Fed</a> </em>just might be onto something. A true audit is the first step to letting the American people know what’s going on with their money. The next step is to abolish the Federal Reserve System.</p>
</div></div></div>Thu, 25 Aug 2011 20:46:48 +0000JBorowski54997 at http://www.freedomworks.orghttp://www.freedomworks.org/content/qe3-will-further-destroy-us-dollar#comments